Falling Off a Financial Cliff

For the past five years, UnumProvident, the nation’s largest disability insurance provider, has listed cancer as its leading cause for long-term disability claims. Cancer of the breast, colon and prostate lead the cancer claims, which make up more than 12 percent of all long-term claims to the company.

How one fares financially during a time of disability depends largely on disability and health insurance coverage and whether that coverage comes from an employer, a private plan or from the government.

The majority of us don’t have nearly enough disability coverage to avoid some financial hardship, says David S. Landay, author of Be Prepared: The Complete Financial, Legal, and Practical Guide to Living with Cancer, HIV, and Other Life-Changing Conditions.

“Income is generally reduced and expenses are higher than expected,” Landay says. “Only a minority of Americans will be financially whole.”

The first layer of protection available to most workers is Social Security Disability (SSD) Insurance. This benefit is for workers who have worked a set number of years, depending on their age, and paid Social Security taxes. (Specific family members may also receive benefits.) The amount received in monthly checks is based on average lifetime earnings and is reported to the beneficiary annually in a letter from the Social Security Administration, but it falls far short of pre-disability earnings.

Getting SSD is not easy. A little more than half of SSD claims are approved, many only after a lengthy process of reconsiderations, hearings and appeals council reviews. And, by law, the benefit does not begin until the sixth full month after the disability began. In most cases, the disability began before a person applied for SSD and before the waiting period, in which case the beneficiary can be paid retroactively for up to 12 months of eligibility, Landay says.

The definition of disability under SSD is very broad. To qualify, one must be unable to engage in “any substantial gainful activity,” not just his or her own job or profession, for at least one year or until death, Landay writes in his book.

The approval rate to qualify for SSD is low in part because people are not correctly defining their disabilities. Landay advises against using the online form, urging people to instead go to a government representative or disability advocate to apply for SSD. To find disability advocates, Landay recommends checking with support organizations like the American Cancer Society, the local bar association or support groups, or contacting the National Organization of Social Security Claimants’ Representatives at (800) 431-2804 for suggestions.

“There is more than one way to say the same thing in defining your disability, and one may show that you are more disabled than another,” Landay says.

He also recommends discussing the disability claim with your doctor to be sure he or she supports the claim. Details of your diagnosis, medical tests and a description of how your condition affects your ability to work are important for approval, Landay says. Also include with the application a statement from your physician confirming your inability to work for at least a year because of your illness, he says.

“Get the doctor on board,” Landay advises. “The way he writes that report — how that’s presented — can help your case.”

Bottom line: For those individuals who qualify for it, SSD monthly payments range from $300 to $1,800 or more, with the average SSD benefit at $978 a month. With a spouse and child, the average is $1,526 a month, according to July figures from the Social Security Administration.

Long-term group disability coverage from an employer typically provides between 60 percent and 70 percent of salary, says Robert Kerzner, president of Limra International, an insurance industry research group based in Windsor, Conn. If you have it, count yourself lucky — only 30 percent of employers offer long-term disability, according to the U.S. Department of Labor’s National Compensation Survey released last year.

If the premiums for group disability are paid by the employer, those monthly benefits are subject to income tax, Kerzner says. But if the premiums are paid by the employee, benefits are not taxed, making the payments close to the beneficiary’s former salary, he says. Premiums for group policies may or may not continue during the period of collecting benefits, depending on the policy. Also, often SSD benefits are factored into the total benefit of what a group policy pays out, and are not added on top of group coverage, Kerzner says. For example, if you make $50,000 a year and your disability insurance pays 60 percent of your salary, you would receive $30,000 a year or $2,500 a month in disability checks. But if your insurer factors SSD into your benefit and your family receives the average $1,526 a month from SSD, you will get only an additional $974 in disability from your insurer.

Individual long-term disability coverage can fill in financial holes, especially for the self-employed, or for those whose company doesn’t offer disability insurance as a benefit. Monthly benefits from individual policies usually are not taxed and SSD benefits typically are added on top of such a policy, Kerzner says. (This difference in benefits is because employer policies are set up to offer financial protection but not create a disincentive to go back to work, while individual policies are marketed more to help people regain financial wholeness, he explains.) Along with UnumProvident, major companies offering disability insurance include Massachusetts Mutual, Colonial Life and Accident, and Northwestern Mutual Life, according to Limra International. (See sidebar for a link to a full list of disability insurers.)

To get an idea of total monthly benefits offered under individual policies, look at the two types offered: non-cancelable and guaranteed renewable. Both types of policies pay until age 65. Non-cancelable is just as it looks — it cannot be canceled — and premiums cannot be raised. It’s more expensive, with average annual premiums of around $1,867, but also has more of a payoff, with average monthly benefits of $4,682, according to a Limra study from the first quarter of 2007.

Guaranteed renewable policies also can’t be canceled, but premiums can be raised. This type of coverage is becoming more popular because it’s less expensive, with annual premiums averaging $563, according to Limra. But its payoff isn’t as high: The average monthly benefit is $1,431, the study found.

Cancer survivors should first check with their employer to see whether disability coverage is available. That’s because group coverage generally doesn’t have medical underwriting requirements, meaning a person’s medical history may not be required to apply. Trade groups, unions and other associations also sometimes offer disability insurance to their members with limited medical information required.

For cancer survivors who are employed and who have no private disability coverage at all, Kerzner says it is possible to get some limited individual policy coverage, depending on the type of cancer and how far it progressed. He advises waiting five to seven years after diagnosis before applying, however.

Even for common cancers, insurance varies because of such things as age and other health issues. But Kerzner says there is some good news about disabilities: On average a person on long-term disability goes back to work in two or three years, according to another Limra study.

For survivors who are unable to work full-time and lack part or all of the coverage above, there are ways to squeeze some money from your assets for income, Landay says:

> Withdrawals from retirement plans and individual retirement accounts. While these withdrawals will be taxed, they are exempt from the 10 percent tax penalty in the event of a disability.

> Credit disability insurance. This type of insurance can be obtained without a medical evaluation and will pay off credit card debt, pay a monthly income in the event of a disability, or put minimum balance payments on hold. Coverage can often be started easily by checking a box on a credit card’s monthly statement.

> Life insurance. It may have a critical or chronic illness benefit that provides a lump sum or a monthly payment for some conditions.

> Part-time work option. Sometimes employers allow partial disability benefits to those working part-time. Social Security allows people to work in a trial work period for up to nine months in any five-year period and still collect SSD, Landay says. There is no cap on earnings during the trial work period, but after that period is used up, a person can still earn $900 a month in 2007 without jeopardizing the SSD benefit, according to the Social Security Administration.

> Supplemental Security Income. This benefit from Social Security is for disabled people with no or low income who have limited assets and who don’t qualify for Social Security Disability. With SSI, you can qualify for Medicaid health coverage in most states, but not all, and can obtain food stamps.

Planning for disability isn’t a priority for most people, but without it cancer survivors may find they have few financial resources, Landay says.

“People with cancer are living longer and longer,” he says. “It’s not just the doctor or the medicine that you need to have covered, but all aspects of your life.”

“Get the doctor on board. The way he writes that report — how that’s presented — can help your case.”

Few Americans who leave their jobs due to disability will find themselves financially unscathed. It’s a familiar problem for cancer survivors.